Free Competition is the constitutional principle governed by art. 170, item IV, of the Brazilian Federal Constitution – CF 1, which purpose is to restrain the “abuse of economic power that pursues market control, competition elimination and arbitrary increase of profits”. Therefore, it is the State’s duty to look after the prevention/restraint of abusive practices performed by market agents with dominant position when such practices may adversely affect the free competition.
Law No. 4,137/1962 – first Brazilian Antitrust Law – was strongly influenced by the North-American regulations and remained in force for almost thirty (30) years. Despite it, it was scarcely applied, as the institutional structure that it created was quite inoperative.
Afterwards, Law No. 8,158/1991 came into force and remained in effect for a short period until the enactment of Law No. 8,884/1994, which granted the Administrative Council for Economic Defense – CADE 2,- the Brazilian Antitrust Agency-, a new structure, transforming it into a federal governmental agency subordinated to the Ministry of Justice, with legal personality and vested with decision-making power. This brought more autonomy and credibility in relation to the previous legislation. Besides, Law No. 8,884/1994 further consolidated the protection of free competition as one of the pillars of the country’s economy.
However, given some inefficiencies associated with the existence of overlapping agencies, as well as the discussions about the merger notification thresholds, among others, it became urgent to discuss changes in the legislation, which led to its complete reform.
Finally, in May, 2012, Law No. 12,529/2011, current Brazilian Antitrust Law, entered into effect, setting a new structure to the Brazilian Competition Defense System, allowing a more effective performance by CADE and introducing the pre-merger control regime by the latter. With the new Law, the competition defense policy, in Brazil, changed significantly.
27.2. Brazilian Competition Defense System – SBDC3
SBDC is formed by (i) CADE and (ii) the Secretariat for the Promotion of Productivity and Competition Advocacy – SEPRAC, subordinated to the Ministry of Economy, which succeeded the extinguished Secretariat for Economic Monitoring (“SEAE”), each one with different roles, as further detailed below.
27.2.1 Administrative Council for Economic Defense – CADE
CADE is the main body in charge of the protection of the free competition in Brazil, responsible for the instruction of administrative proceedings related to violations against the economic order, as well as for the analysis of mergers (these competences belonged to former SDE – Secretariat of Economic Law and SEAE still under Law No. 8,884/1994).
It is composed by the Administrative Tribunal for Economic Defense, the General Superintendence and the Department of Economic Studies.
220.127.116.11 Administrative Tribunal for Economic Defense
The Administrative Tribunal for Economic Defense (“Administrative Tribunal”), which is a decision-maker body, is composed by one President and six Commissioners, appointed by the Brazilian President after the approval of the Federal Senate, all of them with a four-year term of office, prohibited the reappointment.
The Administrative Tribunal’s main competences, but not limited, are, in summary, to decide about the existence of violation against the economic order and to impose the penalties provided in the Law; to judge the administrative claims for the imposition of administrative penalties initiated by General Superintendence; to appreciate the appeals against the preventive measures adopted by the Reporting Commissioner or by the General Superintendence; to analyze the terms of the cease-and-desist commitment and agreements in control of concentrations.
18.104.22.168. General Superintendence – SG4
The SG, on its turn, is commanded by the General Superintendent, with a two-year term of office that can be renewed once and two Deputy Superintendents. The General Superintendent is appointed by the Brazilian President after the approval of the Federal Senate, while the Deputy Superintendents are indicated by the General Superintendent.
SG’s role is to investigate and instruct cases. Its main attributions are: (i) the opening, instruction and issuance of opinions in anticompetitive conduct proceedings; (ii) the instruction and issuance of opinions on merger cases; and (iii) the proposal of agreements and preventive measures.
22.214.171.124. Department of Economic Studies – DEE5
DEE is commanded by one chief economist, who is appointed by the General Superintendent and by the CADE’s President together.
DEE is responsible for two branches of complementary activities: first, advising the General Superintendence and the Administrative Tribunal in the instruction and analysis of administrative proceedings related to mergers and anticompetitive conducts; and, second, elaborating studies to ensure CADE’s technical and scientific updating.
27.2.2. Secretariat for the Promotion of Productivity and Competition Advocacy – SEPRAC6
SEPRAC is the successor of former SEAE and is in charge of the so-called “competition advocacy” before the Government and the society. It means that it promotes free competition, by giving opinions about legislative proposals or drafts of normative acts with respect to the matters related to competition, suggesting review of laws, decrees and regulations, further pronouncing about requests for the review of fees and elaborating studies to evaluate competition in specific markets, in order to subside the decisions to be issued by the governmental authorities.
27.3. CADE’s Functions
CADE, basically, performs three main functions: preventive; repressive; and educational.
The Preventive Function consists of the analysis and decision on mergers between large companies that might undermine free competition (“Economic Concentration Acts – better detailed in Section 27.4, below).
The Repressive Function consists of the investigation and judgment of anticompetitive conducts, pursuant to Article 36 and subsequent one of the Law No. 12,529/2011 and in CADE’s Internal Regulation. Paragraph 3, item I, of such Article lists some examples of conducts that may be harmful to the market, such as cartels, tying arrangement, predatory price, exclusive agreement, among others.
The Educative Function, on its turn, is related to the diffusion of the culture of the free competition, especially in the development of antitrust policy, as a way to implement public policies, by means of partnerships with institutions and governmental bodies, resulting in the consolidation of concepts, growing academic interest in the area, diffusion of the competition policy with the society and technical improvement of the decisions.
27.4. Economic Concentration Act
Pursuant to the Brazilian Antitrust Law (Law No. 12,529/2011, Article 90), a certain transaction is considered as a concentration act, when:
I. There is a merger between two or more previously independent companies;
II. There is a direct or indirect acquisition, by one or more companies, of control or parts of one or more companies, by means of purchase or leasing of shares, membership units, titles or convertible securities, tangible or intangible assets, by contract or by any other means or form;
III. One or more companies absorb another company or companies; or
IV. Two or more companies enter into an associative agreement 7, consortium or joint venture (except when intended for participation in bidding procedures).
In addition, the above listed transactions must be submitted to CADE’s prior approval if they meet the following cumulative thresholds 8:
i. at least one of the economic groups involved in the transaction has registered an annual gross revenue or total volume of business, in Brazil, in its last balance sheet, equivalent to or above BRL 750 million, in the year preceding the operation; and
ii. at least another group involved in the transaction has registered an annual gross revenue or total volume of business, in Brazil, in its last balance sheet, equivalent to or above BRL 75 million, in the year preceding the operation.
Therefore, transactions that are subject to mandatory notification to CADE cannot be consummated until the latter renders a final decision, under penalty of breaching the law and incurring in the so-called “gun-jumping”, which will be further detailed in Section 27.6, below.
27.5. Pre-Merger Review System
Law No. 12,529/2011 introduced the pre-merger review system, which replaced the former post-merger control regime in Brazil, consisting, basically, of the obligation that a reportable transaction under the definition of an economic concentration act be submitted to CADE’s analysis and clearance prior to its consummation.
In the former system, an economic concentration act could be notified to CADE a posteriori, within fifteen (15) business days after its conclusion.
The new pre-merger review system seeks to avoid irreversible losses to the market and to consumers, by ensuring that the market conditions are safeguarded while the analysis by the SBDC is carried out.
27.6. Gun Jumping
Along with the new pre-merger review control regime introduced by Law No. 12,529/11, the so-called gun jumping arose, originated from the North-American Economic Law, which consists of the premature consummation of the transaction by the parties, without CADE´s authorization, in violation to the pre-merger review system.
As a result, the company that incurs in the gun jumping is subject to fines ranging from BRL60,000.00 to BRL60,000,000.00, besides the possible annulment of the acts performed by the parties before obtaining CADE’s approval and the opening of an administrative proceeding for the investigation of potential anticompetitive conduct.
As a consequence, the companies subject to a reportable transaction must keep their physical structures and competitive conditions unchanged until CADE’s final decision and they cannot exchange sensitive information unless strictly necessary for the execution of the formal instrument, before having CADE’s final decision.
CADE´s Resolution No. 24, from July 8th, 2019, establishes the procedures that must be followed by the competition authorities in the analysis of the gun jumping practice and, in addition, the criteria to be taken into consideration by them to establish the applicable pecuniary penalty.
27.7. Costs for the notification of the Economic Concentration Acts
In relation to the costs, the applicant must pay the Procedural Fee of BRL 85,000.00, currently in force 9, when it notifies a transaction to the SBDC, according to article 23 of Law No. 12,529/2011.
27.8. Analysis of the Economic Concentration Acts
The non-fast-track merger filing of economic concentration acts shall be instructed with the documents and information listed in Exhibit I of Resolution No. 02 of May 29th, 2012, with the changes brought by Resolution No. 09, from October 1st, 2014.
Resolution No. 02 also includes the form to be completed by the parties to the mergers eligible to the fast-track procedure (Exhibit II). CADE shall use the fast-track review procedure in the cases that have less competition impact for being simpler mergers, which decisions are usually rendered in less than thirty (30) days from the filing date.
Such application must be submitted whenever possible jointly by the parties to the merger, which shall immediately report any subsequent change of the data contained in the initial filing.
In relation to the analysis term, Law No. 12,529/2011 establishes a period of 240 days, to be counted as from the merger filing or its amendment.
If it is the case, SG may, by a justified decision, declare the operation as complex and determine the execution of a new complementary instruction, specifying the diligences to be made. In this case, SG may request to the Administrative Court the extension of the 240-day period for additional 90 days.
Once the complementary instruction is concluded, SG shall give its opinion either on its satisfactory compliance, receiving it as adequate to the merit examination or determining its reinstruction, if it is incomplete. In the examination of the merits, SG must: (i) pronounce a decision approving the act without restrictions; or (ii) offer impugnation before the Administrative Tribunal, if it considers that the act should be rejected, approved with restrictions or if it concludes that there are no compelling evidences referring to its effects in the market.
Within fifteen days, as from the publication of SG’s decision approving the concentration act eligible to the fast-track procedure or to the non-fast-track procedure, it is possible the presentation of an appeal to the Administrative Tribunal, which may be filed by any interested third parties or, in the case of regulated market, by the respective regulatory agency.
Besides that, the Administrative Tribunal may, upon initiative of one of its Commissioners, by justified decision, request the proceeding for judgment, and the Commissioner that requested it will be considered the Reporting Commissioner. In this case, the Reporting Commissioner shall pronounce a decision scheduling the judgment, if he/she understands that it is sufficiently instructed, or he/she shall demand complementary instruction. If necessary, he/she may, at his/her discretion, request that SG makes the complementary analysis, declaring the controversial points and specifying the diligences to be made.
By occasion of the judgment, CADE’s full panel can approve the concentration act without restrictions, disapprove it or approve it partially. In the last case, it must indicate the restrictions that must be observed as a condition for the validity and efficacy of the operation.
Once the proceeding is judged in the merit, the act cannot be submitted again nor reviewed by the Executive Power.
It is also possible to submit a Consultation to CADE, requesting a manifestation as to whether or not a given conduct is characterized as a violation to competition.
For the filing of the Consultation, the applicant must pay a procedural fee, currently in the amount of BRL 15,000.00, as established in Article 23 of Law No. 12,529/2011, with the changes brought by Law No. 13,196/2015. 10
27.10. Conducts that Violate the Economic Order
27.10.1. Article 36 of Law No. 12,529/2011
Article 36 of Law No. 12,529/2011 establishes that a conduct is considered as a violation of the economic order when it has as objective or can have the following effects, even if they are not achieved: (i) to limit, restrain or in any way harm the free competition; (ii) to increase profits of the economic agent on a discretionary basis; (iii) to control relevant markets of certain goods or services and (iv) when the economic agent practices market power in an abusive way.
A violation of the economic order is characterized regardless of fault of the agent and can be verified even if the harmful effects are only potential.
The same Article 36, in its Paragraph 3rd, contains a lengthy but not exclusive list of illegal conducts, as long as they fulfill the harmful effects provided for in the Caption and items of the referred to Article 36. Such conducts shall be analyzed by CADE, in a case by case basis.
Among such conducts, it can be highlighted: cartel; predatory pricing; fixation of resale price; territorial restrictions of client’s basis; exclusive dealings, tying arrangement; and price discrimination.
The applicable penalties, if the violation of the economic order is confirmed, may achieve up to 20% of the gross revenue of the involved company in the activity field where the violation occurred, in the year prior to the filing of the administrative proceeding; and from 1% to 20% of the penalty applied to the company to its directors and other executives, directly or indirectly held liable for the conduct, besides certain prohibitions, like operate, contract or obtain benefits with public organizations.
If it is not possible to use the gross revenue criterion, the fine to be imposed to other individuals or public or private legal entities, as well as to any de facto or de jure legal entities, even if incorporated for a limited period of time, with or without legal status, which do not perform business activity, shall range from BRL 50,000.00 to BRL 2,000,000,000.00.11
Fines imposed for recurring violations must be doubled.
The following factors shall be taken into consideration in the calculation of the those fines: (i) the agent’s willful misconduct and the seriousness of the violation; (ii) the transgressor’s good faith and the advantage obtained by him/her; (iii) whether or not the violation was consummated; (iv) the degree of harm or threatened harm to free competition, the national economy, consumers, or third parties; (v) the negative economic effects produced to the market; (vi) the size of the companies and their economic situation; and (vii) the contumacy.
27.11. Judicial Review of CADE’s Decisions
CADE is the last level in the administrative ground responsible for the final decision on competition issues. However, CADE’s decisions can be challenged before Judicial Courts as provided for in Article 5, XXXV, of the Brazilian Federal Constitution, combined with Article 109, I.
Whenever CADE is the plaintiff or defendant to a lawsuit, or acts as assistant or opponent, the competent court to judge the case is the Judiciary Section of the Federal District. On the other hand, in lawsuits relating to the enforcement of CADE’s decisions imposing fine and others penalties, CADE may choose to file the lawsuit at the venue where the other party is domiciled.
CADE’s decisions which impose fine are considered extrajudicial executive titles, as per article 93 of Law No. 12,529/2011 and the fines must be registered in the records of indebtedness of the Federal Union.
Notwithstanding the time spent for the analysis of a certain transaction/ conduct in the administrative grounds, the proceeding may also last several years in the judicial grounds due to the moroseness of the Justice.
27.12. Relation between SBDC and Others Institutions
SBDC acts together with some federal bodies and regulatory agencies, which are in charge of some sectors of the economy, mainly the infrastructure and public services.
One example of that is the agreement cooperation signed in 2014 between CADE and the Brazilian Office to Combat Corruption – CGU 12, having as scope the technical and operational cooperation in relation to the repression to frauds in bids.
There are other examples of agreements signed between CADE and other governmental entities, among which the following ones can be highlighted: those executed with the Federal Union, the Brazilian Economic and Social Development Bank – BNDES, the Brazilian Agency of Supplementary Health (ANS), the Brazilian Agency of Petroleum, Natural Gas and Biofuels (ANP), the Federal Judges Association (AJUFE), the National Health Surveillance Agency (ANVISA), Prosecution Offices of several Brazilian states, the Brazilian Institute of Industrial Property (INPI), ICC Brasil –Brazilian Committee of the Foreign Commerce Chamber and the Consumer National Secretariat (SNC).
CADE also entered into international agreements with several countries, as well as executed Treaties and Cooperation Protocols with MERCOSUR countries. SBDC also attends several international meetings to exchange experiences on antitrust policies, such as OCDE (Organization for Economic Cooperation and Development) and ICN (International Competition Network).
27.13. Incentives to Compliance Programs
Given the risks associated with the practice of anticompetitive conducts, it has been stimulated the adoption of compliance programs, even by CADE, which published the “Guideline – Compliance Programs – Orientations about Structure and Benefits on the Adoption of Competition Compliance Programs”, establishing directions to the companies in relation to such programs, particularly in the grounds of competition defense.
There is not one single model of compliance program, which may be more or less complex, depending on the size, market position and activities of each company, among other factors.
Among the benefits of those programs, the following can be mentioned: prevention of risks of violation to the legislation, anticipated identification of problems, recognition of violations in other organizations (competitors, suppliers, distributors or clients), reputational benefit, awareness of the employees and reduction of costs and contingencies.
1 – CF in its acronym in Portuguese
2 – CADE is the Portuguese acronym for “Administrative Council for Economic Defense”, which is the official designation of the Brazilian Antitrust Agency.
3 – SBDC in its acronym in Portuguese.
4 – SG in its acronym in Portuguese.
5 – DEE in its acronym in Portuguese.
6 – SEPRAC in its acronym in Portuguese.
7 – Resolution CADE No. 17/2016, which governs the notification of associative agreements.
8 – Article 88 of the Law No. 12,529/11 and Interministerial Ordinance MJ/MF No. 994/12, article 1.
9 – June/2020.
10 – From December 1st, 2015.
11 – Article 37 II of Law No. 12,529 from November 30, 2011.
12 – CGU in its acronym in Portuguese.
Authors: Sonia Marques Döbler, Fabiana Nitta and Graziella Dell’Osa
Sonia Marques Döbler Advogados
Rua Dona Maria Paula, 123 – 19º andar – Ed. Main Offices
01319-001 São Paulo – SP
Tel.: (11) 3105-7823
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E-mail: [email protected]
Internet: www.smda.com.br / www.dobler.com.br
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Areas of expertise: Business Law, including Antitrust, Consumer Relations, Contracts, Corporate Law, M&A, International Negotiations, Civil, Tax and Labor Corporate and Litigation and Foreign Investment.